E.I. du Pont de Nemours and Company

“ In United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 77 S.Ct. 872, 1 L.Ed.2d 1057, the Court held that the acquisition and continued ownership by E. I. du Pont de Nemours & Co. of twenty-three percent of the stock of the General Motors Corporation constituted a violation of § 7 of the Clayton Act. [19] The question now before us is the adequacy of the terms of the enforcement of that judgment by the United States District Court for the Northern District of Illinois, 177 F.Supp. 1. ”

“ If competition is at the core of the Sherman Act, we cannot agree that it was consistent with that Act for the enormously lucrative cellophane industry to have no more than two sellers from 1924 to 1951. The conduct of du Pont and Sylvania illustrates that a few sellers tend to act like one and that an industry which does not have a competitive structure will not have competitive behavior. The public should not be left to rely upon the dispensations of management in order to obtain the benefits which normally accompany competition. ”

“ Our next step is to determine whether du Pont has monopoly power over cellophane: that is, power over its price in relation to or competition with other commodities. The charge was monopolization of cellophane. The defense, that cellophane was merely a part of the relevant market for flexible packaging materials.
IV. The Relevant Market.-When a product is controlled by one interest, without substitutes available in the market, there is monopoly power. Because most products have possible substitutes, we cannot, as we said in Times-Picayune Pub. ”

“ The primary issue is whether du Pont's commanding position as General Motors' supplier of automotive finishes and fabrics was achieved on competitive merit alone, or because its acquisition of the General Motors' stock, and the consequent close intercompany relationship, led to the insulation of most of the General Motors' market from free competition, with the resultant likelihood, at the time of suit, of the creation of a monopoly of a line of commerce. ”

“ If cellophane is the 'market' that du Pont is found to dominate, it may be assumed it does have monopoly power over that 'market.' [17] Monopoly power is the power to control prices or exclude competition. [18] It seems apparent that du Pont's power to set the price of cellophane has been limited only by the competition afforded by other flexible packaging materials. Moreover, it may be practically impossible for anyone to commence manufacturing cellophane without full access to du Pont's technique. However, du Pont has no power to prevent competition from other wrapping materials. ”

“ The acquisition of an outlet is governed by similar principles. In either case, the question is whether competitors may be substantially limited in their competitive opportunities. Assuming that du Pont had purchased General Motors outright, and thus commanded an outlet consuming about 4% of the national market for industrial finishes and about 2% of the national market for industrial fabrics, it seems unlikely that du Pont's paint and fabric competitors would be substantially limited in selling their products, when 96% and 98%, respectively, of the national market would remain open to them. ”

“ Patents, on the other hand, furnish the most familiar type of classic monopoly. As the producers of a standardized product bring about significant differentiations of quality, designed, or packaging in the product that permit differences of use, competition becomes to a greater or less degree incomplete and the producer's power over price and competition greater over his article and its use, according to the differentiation he is able to create and maintain. ”

“ Du Pont is primarily a manufacturer of chemicals and chemical products. Thousands of its products could be used by General Motors in manufacturing automobiles, appliances and machinery. Despite du Pont's sales efforts over a period of 40 years, General Motors buys many of the commodities produced by du Pont from du Pont's competitors. [54] The Court, ignoring the many products which General Motors declines to buy from du Pont or which it buys only in small quantities, concentrates on the few products which du Pont has sold in large volume to General Motors for many years-paints and fabrics. ”

“ A prospective supplier, instead of selling to General Motors, sells to Chevrolet, or Frigidaire, or Ternstedt, or Delco Light, as divisions. Moreover, when there are several plants within a division, each plant frequently has its own purchasing agent and presents separate selling job.
The record discloses that each division buys independently, that the pattern of buying varies greatly from one division to another, and that within each division purchases from du Pont have fluctuated greatly in response to price, quality, service and other competitive considerations. ”

“ Price and competition are so intimately entwined that any discussion of theory must treat them as one. It is inconceivable that price could be controlled without power over competition or vice versa. This approach to the determination of monopoly power is strengthened by this Court's conclusion in prior cases that, when an alleged monopolist has power over price and competition, an intention to monopolize in a proper case may be assumed. ”

“ But where there are market alternatives that buyers may readily use for their purposes, illegal monopoly does not exist merely because the product said to be monopolized differs from others. If it were not so, only physically identical products would be a part of the market. To accept the Government's argument, we would have to conclude that the manufactures of plain as well as moistureproof cellophane were monopolists, and so with films such as Pliofilm, foil, glassine, polyethylene, and Saran, for each of these wrapping materials is distinguishable. ”

“ Appellees argue that there exists no basis for a finding of a probable restraint or monopoly within the meaning of § 7 because the total General Motors market for finishes and fabrics constituted only a negligible percentage of the total market for these materials for all uses, including automotive uses. It is stated in the General Motors brief that in 1947 du Pont's finish sales to General Motors constituted 3.5% of all sales of finishes to industrial users, and that its fabrics sales to General Motors comprised 1.6% of the total market for the type of fabric used by the automobile industry. ”

“ General Motors shares allocable to the two companies or to their officers and directors, or to the officers and directors of du Pont, or to resident members of the families of the officers and directors of the several companies, were to be sterilized, voted by no one. Du Pont, Christiana, and Delaware were forbidden to acquire any additional General Motors stock. Du Pont and General Motors might not have any preferential or discriminatory trade relations or contracts with each other. ”

“ Units of traders and producers snowballed by combining into so-called 'trusts.' Competition was threatened. Control of prices was feared. Individual initiative was dampened. While the economic picture has changed, large aggregations or private capital, with power attributes, continue. Mergers go forward. Industries such as steel, automobiles, tires, chemicals, have only a few production organizations. A considerable size is often essential for efficient operation in research, manufacture and distribution. ”

“ And during the period 1933-1946 the prices for glassine and waxed paper actually increased in the face of a further 21% decline in the price of cellophane. If 'shifts of business' due to 'price sensitivity' had been substantial, glassine and waxed paper producers who wanted to stay in business would have been compelled by market forces to meet du Pont's price challenge just as Sylvania was. The majority correctly point out that:
'An element for consideration as to cross-elasticity of demand between products is the responsiveness of the sales of one product to price changes of the other. ”

“ Economic Rev. 29, 60-63, where the authors compare the domestic economic history of rayon with that of cellophane. The first American rayon producer earned 64.2% on its investment in 1920, thereby attracting du Pont. After a loss in 1921, du Pont's average return for the next four years was roughly 32%. As more firms began rayon production, du Pont's and the industry's return on investment began to drop. When 6 new firms entered the industry in 1930, bringing the number of producers to 20, average industry earnings for that year declined to 5% and du Pont suffered a net loss. ”

“ Our cases determine that a party has monopoly power if it has, over 'any part of the trade or commerce among the several states', a power of controlling prices or unreasonably restricting competition. ”

“ On the other hand, there are certain differences in the formulae for soft drinks but one can hardly say that each one is an illegal monopoly. Whatever the market may be, we hold that control of price or competition establishes the existence of monopoly power under § 2. Section 2 requires the application of a reasonable approach in determining the existence of monopoly power just as surely as did § 1. ”

“ Thus one can theorize that we have monopolistic competition in every nonstandardized commodity with each manufacturer having power over the price and production of his own product. [20] However, this power that, let us say, automobile or soft-drink manufactures have over their trademarked products is not the power that makes an illegal monopoly. Illegal power must be appraised in terms of the competitive market for the product. ”

“ The boundary between the course of events by which a business may reach a powerful position in an industry without offending the outlawry of 'monopolizing' under § 2 of the Sherman Act and the course of events which brings the attainment of that result within the condemnation of that section, cannot be established by general phrases. ”

“ The du Pont shareholders will ipso facto also be General Motors voters. It will be in their interest to vote in such a way as to induce General Motors to favor du Pont, the very result which we found illegal on the first appeal. It may be true, as appellees insist, that these shareholders will not exercise as much influence on General Motors as did du Pont when it held and voted the shares as a block. ”

“ The Fisher Body division, long controlled by the Fisher brothers under a voting trust even though General Motors owned a majority of its stock, followed an independent course for many years, but by 1947 and 1948 'resistance had collapsed' and its purchases from du Pont 'compared favorably' with purchases by other General Motors divisions. Competitors came to receive higher percentages of General Motors business in later years, but it is 'likely' that this trend stemmed 'at least in part' from the needs of General Motors outstripping du Pont's capacity. ”

“ Governs This Case.-The foregoing summary of the evidence relating to General Motors' purchases of paint and fabrics from du Pont, comparatively brief as it is, reveals that a multitude of factual issues underlie this case. The occurrence of events, the reasons why these events took place, and the motives of the men who participated in them are drawn in question. The issue of credibility is of great importance. ”

“ But the so-called issued of fact and law that call for adjudication in this legal territory are united, and intrinsically so, with factors that entail social and economic judgment. Any consideration of 'monopoly' under the Sherman law can hardly escape judgment, even if only implied, on social and economic issues. ”

“ United States, 221 U.S. 1, 50, 31 S.Ct. 502, 511, 55 L.Ed. 619, that fear of the power of rapid accumulations of individual and corporate wealth from the trade and industry of a developing national economy caused its passage. ”

“ The Government apparently concedes as much, for it states that 'lack of power to inhibit entry into this so-called market (i.e., flexible packaging materials) , comprising widely disparate products, is no indicium of absence of power to exclude competition in the manufacture and sale of cellophane.' The record shows the multiplicity of competitors and the financial strength of some with individual assets running to the hundreds of millions. ”